It is not entirely surprising that Amos Gilad, an Israeli general who once sued his own government for “irreversible mental damage” caused by his role in the 1982 invasion of Lebanon, has publicly courted controversy again.

On Monday, Ehud Olmert, Israel’s outgoing prime minister, suspended Mr Gilad as his envoy to Egypt, responsible for negotiating a ceasefire with Hamas, after Mr Gilad called the prime minister’s truce conditions “insane”.

The move threatened to unleash a political storm in Israel. Ehud Barak, the defence minister and a longtime ally of Mr Gilad, rushed to denounce Mr Olmert’s decision. He insisted that Mr Gilad, a defence ministry official in charge of diplomatic and security issues, would continue with his other duties.

Mr Gilad’s fingerprints are to be found on most of the hawkish policies approved by the political leadership since the start of the intifada in 2000, including the emasculation of the Palestinian Authority, the “disengagement” from Gaza, and the promotion of civil war between Hamas and Fatah.

In a sign of Mr Gilad’s indispensability, Mr Olmert was forced to make an embarrassing climbdown two days later and reinstate the wayward official after Mr Gilad submitted a written apology.

Israeli commentators have noted that Mr Gilad has sought over the years to erode the distinction between military and political influence. Writing in Haaretz newspaper, Akiva Eldar has accused Mr Gilad of being “a mephisto in and out of uniform” who has turned his department “into one of the most important power centres in the country”.

Popularly known as the “National Explainer”, Mr Gilad opened the rift with Mr Olmert last week when he gave an interview to Maariv, another daily newspaper, over his role in negotiating a renewed ceasefire with Hamas in Gaza.

Mr Gilad, who brokered the six-month truce that preceded Israel’s recent three-week Gaza offensive, is said to have believed an agreement was at hand in which Hamas would end both arms smuggling into and rocket fire out of Gaza in return for the opening of border crossings.

Angered that Mr Olmert effectively stalled the talks at the last minute by also linking the ceasefire to the release of Gilad Shalit, an Israeli soldier captured in 2006, Mr Gilad told the paper: “I don’t understand what they are trying to do. Insult the Egyptians? … This is insanity, simply insanity.”

Until recently, talks about Sgt Shalit’s release had focused on a prisoner exchange in which Hamas is demanding freedom for hundreds of Palestinians.

When Mr Gilad refused to apologise, Mr Olmert suspended him as envoy and lodged a complaint with the Civil Service Commission. Mr Olmert’s move, in the last days before he leaves office, threatened to set him on a collision course with defence officials, who appear keen to agree to a long-term ceasefire with Hamas.

Mr Barak’s staff issued a stern rebuke of the prime minister, warning that Israel would “suffer the consequences”. Mr Barak himself called the decision “shameful” and described Mr Gilad as “a dedicated and outstanding civil servant”.

Mr Barak’s close ties to Mr Gilad date to his premiership, when Mr Gilad briefed him as head of military intelligence’s research department.

Contrary to the pragmatic, almost dovish, image he has now acquired inside Israel, Mr Gilad has traditionally been regarded as an ultra-hawk.

It was his briefings at the time of Camp David in 2000, in which he claimed that the Palestinian leader, Yasser Arafat, was determined to use the second intifada to destroy Israel, that gave weight to Mr Barak’s slogan “There is no partner for peace”.

Four years later, in June 2004, a series of military officials revealed that Mr Gilad had doctored intelligence reports and presented a false picture to the politicians.

In reality, according to the director of military intelligence, Amos Malka, the evidence showed that Arafat wanted to reach a deal with Israel and had been taken by surprise by the ferocity of the popular Palestinian uprising.

At the same time, he won a disability allowance from the defence ministry for developing diabetes following what he called “heavy emotional pressure” during the 1982 Lebanon war, which had left him psychologically scarred.

Mr Gilad is blamed by some Israeli analysts for fuelling Israel’s hawkish policies throughout the second intifada.

Commenting in 2004, Roni Ben Efrat noted that Mr Gilad’s false intelligence had provided the political justification “for isolating Arafat and attempting to replace him with Abu Mazen [Mahmoud Abbas]. It lies today at the root of the plan to disengage unilaterally from Gaza.”

However, the false intelligence revelations, as well as claims of mental impairment, did little to dent Mr Gilad’s subsequent influence. He went on to become the army’s co-ordinator in the occupied territories and helped Mr Barak’s successor, Ariel Sharon, engineer the reoccupation of the West Bank and crush the Palestinian Authority.

He also promoted the view that Israel was on the front line in the “war on terror”. In Feb 2003, a month before the US invasion of Iraq, he stated that Mr Arafat and Iraq’s dictator, Saddam Hussein, “believe in the same path, the path of terror meant to break Israel”.

When he took over diplomatic and security issues at the defence ministry in May 2003, Reuven Pedatzur, a military analyst, warned that the appointment marked “another step in the process of militarisation [of] Israeli society”. He added: “Civilians – and civil worldviews – have been totally excluded from any involvement or influence in the diplomatic process.”

Since Mr Olmert’s effective resignation in September over corruption allegations, and as Israel still waits for a new prime minister to emerge, government officials have complained that, despite being unelected, Mr Gilad is as good as “running the country”.